Canada: New Personal Tax Rates; TFSA and Investment Income of CCPC Changes

By Robert Robillard - 8 December 2015

This blogpost originally appeared on rbrt.ca.

Cette information est disponible en français ici et l’Avis de motion de voies et moyens visant à modifier la Loi de l’impôt sur le revenu est disponible ici.

Yesterday Canada’s Department of Finance got really busy:

“The new measures consist of the following:

  • Reducing the second personal income tax rate to 20.5 per cent from 22 per cent. This would take effect on January 1, 2016 and for subsequent taxation years.
  • Introducing a 33-per-cent personal income tax rate on individual taxable income in excess of $200,000, effective for the 2016 and subsequent taxation years.
  • Returning the Tax-Free Savings Account (TFSA) annual contribution limit to $5,500 from $10,000 and reinstating indexation of the TFSA annual contribution limit, effective for the 2016 and subsequent taxation years.

In addition to these proposed tax changes, other amendments to the Income Tax Act, as described below, are proposed as consequential to the introduction of the new 33-per-cent personal income tax rate.”

Regarding the investment income of private corporations, the document explains:

“Given that corporate tax rates are generally lower than personal tax rates, special refundable taxes are imposed on investment income of private corporations in order to limit the ability of individuals to defer taxation by holding investments in a private corporation. It is proposed that these refundable taxes and the related refund rate be increased effective January 1, 2016 to reflect the proposed new 33-per-cent personal income tax rate. Specifically:

  • the refundable additional Part I tax on investment income of Canadian-controlled private corporations (CCPCs) will be increased by 4 percentage points (to 10.67 per cent from 6.67 per cent);
  • the refundable portion of Part I tax on investment income of CCPCs will be increased by 4 percentage points (to 30.67 per cent from 26.67 per cent);
  • the refundable Part IV tax on portfolio dividends received by private corporations will be increased by 5 percentage points (to 38.33 per cent from 33.33 per cent); and
  • the rate at which refunds are made out of a private corporation’s pool of refundable taxes previously paid (known as “Refundable Dividend Tax on Hand”) when it pays dividends will be increased by 5 percentage points (to 38.33 per cent from 33.33 per cent of dividends paid).”

See the complete Notice of Ways and Means Motion to Amend the Income Tax Act here.

Robert Robillard, Ph.D., CPA, CGA, Adm.A., MBA, M.Sc. Econ., M.A.P.
Senior Partner, RBRT Inc.
514-742-8086; robertrobillard “at” rbrt.ca
www.rbrt.ca

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